What Makes a Moat?

In an excerpt from their new book, Morningstar's Heather Brilliant and Elizabeth Collins explore how to identify a moat and how intangible assets can help a firm carve out a sustainable competitive advantage.

Identifying economic moats, or structural barriers that protect companies from competition, is the cornerstone of Morningstar's equity analysis. Similar to the way castles are protected by moats, companies with economic moats are great businesses that can fend off competition and earn high returns on capital for many years. Morningstar's new book, Why Moats Matter: The Morningstar Approach to Stock Investing, helps investors find superior businesses and determine when to buy them to maximize returns over the long term.

During the next three days Morningstar.com will be presenting excerpts from the book on what makes a moat and how to identify the five sources of moat. Part 1 is below.